ONGC to approach shareholders for approval to raise 25000 cr for HPCL buy
and Natural Gas Corporation Ltd (ONGC) will seek shareholders approvals to raise a debt of ` 25,000 crore to fund its acquisition of Hindustan Petroleum Corporation Ltd (HPCL).
ONGC’s board has already approved raising the debt and will now take the proposal to shareholders. “This is a blanket approval. We have kept all options open from bank loan to issue of domestic or overseas bonds,” said a senior ONGC executive. ONGC would need ` 37,750 crore to pay for government’s 51.1% stake in HPCL at current market prices.
ONGC plans to use a mix of internal resources and debt to fund the deal. It has a cash reserve of about ` 13,000 crore. This would be ONGC’s first borrowing in more than a decade. The company has mostly depended on its pile of cash to fund its capex. “A decision on how we fund the deal would depend on valuation of HPCL stake. We would evaluate all options from taking bridge loan from domestic and foreign banks or issue bonds in India or overseas and will go for a mix that works best for us,” the executive said.
The Cabinet recently in principle approved the sale of the government’s entire 51.11% stake in HPCL to ONGC in a bid to create a state-run integrated oil major that can compete with private and foreign players. ONGC currently produces 60% of the country’s crude oil and with HPCL as its subsidiary will become the nation’s third-largest refiner with control over 40 million tonnes per annum of refining capacity. ONGC already controls a 15 million tonnes refinery through its unit, MRPL. The deal would also give ONGC control over HPCL’s 14,500 filling stations, or about a quarter of country’s petrol pumps.
HPCL to buy MRPL as part of ONGC-HPCL deal
Mangalore Refinery and Petrochemicals (MRPL), which was once part of HPCL and then changed hands to ONGC, will now to be back in the fold of its original parent. This is part of the overall plan where HPCL is expected to buy MRPL from ONGC for a hefty ` 15,000 crore.
While the payout for ONGC to buy out the Centre’s 51 per cent stake in HPCL will cost nearly ` 37,750 crore, a sale of its own equity in MRPL as part of the integration effort will reduce this outgo by close to half. In the process, this will mark a journey back home for this 15 million tonne refining company which was first created as a joint venture between HPCL and the AV Birla Group in the early 1990s.
Today, ONGC is a major shareholder in MRPL with 72 percent, while HPCL’s equity has whittled down to a paltry 17 per cent.
If everything goes according to plan, once HPCL buys out ONGC’s 72 per cent stake, its own holding in MRPL will be up to nearly 90 per cent. The added bonus will be in getting a foothold into the petrochemicals space, an area of tremendous interest for HPCL.
The ONGC-HPCL deal will bring in approximately ` 37,000 crore to the centre which will continue to be the largest shareholder in the new entity. From HPCL’s point of view, it will be poorer by ` 15,000 crore by taking over MRPL which it really should not have lost in the first place.